By Dave Lindorff

Wait a minute! Did I hear correctly? Did Treasury Secretary and
former New York Federal Reserve Bank screw-up Tim Geithner really tell
a House Financial Services Committee today that he needed “new powers”
to allow the federal government to take control of non-bank financial
corporations whose actions threaten the financial system or the economy
and “break them up”?

The subject under discussion at the hearing was AIG, and Geithner
and Fed Chairman Ben Bernanke, under attack for those AIG “bonus
payments” to executives, were trying to talk tough about the evil
insurance giant.

But aren’t the powers that Geithner is calling for exactly the
powers that he and Bernanke already have in the case of the banking
industry?

Yes they are.

So why aren’t we seeing the Obama administration and the Fed going
after the banking giants that have been co-conspirators with AIG in
wreaking havoc with the US and the global economy by creating dodgy
structured financial instruments that allowed banks and other financial
companies to make huge off-balance-sheet bets that virtually guaranteed
a future collapse?

Good question, but not one that the House Finance Committee was asking.

Instead of doing the obvious—which would be to use the Fed’s and
the Federal Deposit Insurance Corporation’s powers to take over failed
banking institutions, break them up, and sell the healthy parts off to
stronger institutions—Geithner, Bernanke and the Obama financial team
have been pouring dollars into a group of zombie banks that are already
technically insolvent by any honest accounting standards, and that have
no chance of standing on their own. They are borrowing money at such a
prodigious rate that the Chinese government, America’s major creditor,
and the United Nations, are talking about the need to do away with the
dollar as the global currency, to be replaced by some basket of
currencies, and in the process virtually assuring that the US currency
will shrink dramatically in value, They are putting a colossal debt
upon future generations of Americans. And they are putting at risk all
the progressive goals that voters sent Obama to Washington expecting
him to enact: health care reform, energy reform, education reform, etc.

If Geithner and Bernanke think it is important, and appropriate, to
break up dangerously large and threatening enterprises like AIG, why
are they not even talking about breaking up Citigroup, Bank of America,
Wells Fargo, Goldman Sachs and other overlarge large banking firms?

Too big to fail should simply mean too big to exist. It’s that simple.

Not one more dollar should be spent trying to rescue these zombie
banks. In fact, they should be ordered to give back the hundreds of
billions of dollars that were already poured into them, most of which
they have reportedly simply invested in Treasury notes, since there was
nobody creditworthy who wanted to borrow the money. Then the regulators
should move in and shut all the big banks down, and begin the process
of tearing them apart. Those parts that are deemed hopelessly in debt
because of huge holdings of Credit Default Swaps and other toxic
financial products should be shut down, with shareholders and
bondholders taking the hit. The healthy parts—the banks with all the
deposits—can be auctioned off in pieces to smaller state and regional
banks.

Never again should there be federal banks whose branches and
brokerage and insurance subsidiaries span the nation and the globe.

There is no need for such entities. For one thing, they are too
powerful politically, with operations in every congressional district,
much like the Pentagon and the arms industry, and we’ve seen where that
gets us. For another, particularly when it comes to insurance, the
regulators are state based, making national companies largely out of
reach. Finally, national banks have little or no interest in small
businesses and their credit needs.

If large global firms need bank loans, let the banks organize
syndications to accommodate them. That has always worked in the past,
and in fact, is still done for big global firms.

Geithner should be forced to explain why he needs new powers to
break up non-bank financial companies, if he is unwilling to use the
powers he already has to break up too-large banks.

Then he should be fired and someone should be brought in to replace him who will demand the breakup of those banks.

While we’re at it, President Obama should also be asked why his
Treasury Secretary needs “new powers” to go after companies like AIG
that are too large for the good of the country. That power already
resides in the Federal Trade Commission and the Justice Department,
both of which can use their anti-trust authority to break up companies
that are deemed anti-competitive—surely an apt characterization of AIG.

While average Americans all know that corporations have become far
big and too powerful, making the old Rockefeller Standard Oil Trust
look quaint by comparison, anti-trust in Washington has become almost a
dirty word. It needs to be dusted off and trotted out as a major policy
tool, if this country is to return to economic health.
_________________
DAVE LINDORFF is a Philadelphia-based journalist. His latest book
is “The Case for Impeachment” (St. Martin’s Press, 2006). His work is
available at www.thiscantbehappening.net